Action on Tax Credit Legislation Bumped to 2008
By A. J. Johnson & Caitlin Jones
6 min read
AS THE FIRST SESSION OF THE 110th Congress drew toward a close before year-end, supporters of transferred to 2008 their expectations for action by Congress on legislation to amend the federal low-income housing and historic rehabilitation tax credit programs, and to extend the federal new markets tax credit.
As the Tax Credit Advisor went to press in mid-December, Congress was still in session and grappling with a few critical tax and non-tax bills that Democratic leaders wanted to pass before year-end. Among these were a long-term omnibus appropriations bill for the federal government for the balance of Fiscal Year 2008, which began 10/1/07; energy legislation; and legislation to create a one-year “patch” to prevent the alternative minimum tax from hitting some 19 to 20 million individual taxpayers in tax year 2007.
Congress and the Bush Administration are eager to enact one-year AMT relief. But there has been disagreement on whether legislation to provide such relief should comply with “pay-as-you-go (PAYGO) rules adopted by Democrats that require revenuelosing tax law changes to be offset and paid for by revenue-raising provisions or federal spending cuts. Democratic House tax leaders favor complying with the rules; the Bush Administration, some Senate Democrats, and certain other lawmakers favor passing an AMT relief bill without offsets.
The dwindling congressional calendar and other legislative priorities have combined to bump to 2008 action by House and Senate tax writers on proposed legislative amendments to the federal housing and historic tax credit programs. Also bumped is legislation to extend the new markets tax credit (NMTC) program beyond its current sunset date of 12/31/08.
House Ways and Means Committee Charles Rangel (DNY) is expected in early 2008 to introduce a bill containing numerous amendments to the housing credit program, for markup by his committee and a subsequent vote by the full House.
The bill is likely to contain at least some of the elements in a package of potential housing credit amendments — just under 20 — that has been put together by tax staff after receiving input from various parties including representatives of the housing credit and historic credit industries. The congressional Joint Committee on Taxation has been asked to “score” — determine the projected revenue cost, if any — of each of these amendments. This scoring, necessary before a markup, are likely to influence the ultimate contents of the bill introduced and marked up. Revenue scores will be especially critical if House tax writers follow the PAYGO rules in writing a bill that includes the tax credit amendments.
All the potential amendments in the package submitted for scoring would amend or affect the LIHTC. One, though, would also affect the historic credit program. It would eliminate the current requirement that the eligible basis of a project for purposes of the housing credit must be reduced by the amount of federal historic tax credit received, in projects receiving both types of credits.
Some of the other proposed amendments to the LIHTC in the pending package would:
- Exempt the housing credit (and interest on tax-exempt private activity bonds as well) from the alternative minimum tax, for corporate taxpayers. Enactment of an amendment to allow corporate investors to reduce their AMT liability with housing credits would provide much needed relief in the currently roiled LIHTC equity market. (See p. 10 for article on equity market.)
- Fix the credit percentages at a flat 9% and 4%.
- Eliminate the restriction to the 4% credit for new construction or substantial rehabilitation expenditures for federally subsidized buildings, except where the expenditures are funded by proceeds of tax-exempt private activity bonds. Housing credit agencies could therefore approve a larger credit amount than currently allowed for projects receiving federal subsidies.
- Provide that rental or operating subsidies provided under a number of specific federal housing programs be treated similar to HUD Section 8 rent subsidies, so that a project’s eligible basis would be reduced by the amount of these subsidies.
- Allow housing credit agencies to increase the eligible basis of certain projects by up to 30%. This treatment would be allowed for projects that meet certain state-specified geographic or income targeting requirements.
- Repeal the current 10% expenditure requirement to qualify for a carryover allocation.
- Permit, within certain restrictions, a limited number of units in a project to be rented to households earning more than 60% but no more than 80% of area median income (AMI), provided an equal number of units are rented to tenants at or below 40% of AMI.
Congressional tax staff are also trying to craft a possible amendment to remedy a current problem arising from a change by HUD in the way it calculates annual estimates of median income and income limits for very low-income households. Changes reflected in the FY 2007 figures currently are likely to prevent maximum housing credit rents from rising in many parts of the country for years.
Separately, the House Financial Services Committee, under the direction of Chairman Barney Frank (D-MA), a big supporter of affordable housing, next year is expected to consider and act on legislation to amend parts of various different federal housing programs — including those run by HUD — to make such programs more “user friendly” to combination with the housing credit.
In the Senate, the Finance Committee is expected to defer markup of housing credit amendments until after House action. In the meantime, though, Finance Committee member Maria Cantwell (D-WA) has begun fashioning a draft bill with numerous LIHTC amendments. (See Tax Credit Advisor, December 2007, p. 2).
Meanwhile, historic preservation advocates continue to lobby hard for passage of numerous proposed amendments to the federal historic tax credit program contained in bills (H.R. 1043, S. 584) introduced in 2007 in the House by Ways and Means members Stephanie Tubbs-Jones (D-OH) and Phil English (R-PA), and in the Senate by Sens. Blanche Lincoln (D-AR) and Gordon Smith (R-OR). As of 12/11/07, H.R. 1043 had 83 co-sponsors and S. 584 had eight co-sponsors. (For details of bills, see Tax Credit Advisor, May 2007, p. 15.)
NMTC Program Extension
The NMTC program has its own set of advocates, who continue to try to push for passage of legislation to extend the NMTC by one year or more. At the end of 2006, Congress passed and the president signed a measure that extended the NMTC program by one year, through 2008.
Pending bills in the House and Senate (H.R. 2075, S. 1239) would extend the NMTC program through 2013. As of 12/11/07, H.R. 2075 had 43 co-sponsors and S. 1239, 26 co-sponsors.
The House on 11/9/07 approved a bill (H.R. 3996) that would extend the NMTC program though 2009 and provide an additional $3.5 billion in allocation authority for one more funding round.
